LEONARDO L. VILLALON, petitioner, vs. RENATO E. LIRIO, respondent. [G.R.

No. 183869. August 3, 2015.]

FACTS: Respondent Renato Lirio and Semicon Integrated Electronics Corporation

(of which Leonardo Villalon is president and its representative) entered into a
contract of lease covering Lirio’s properties in Pasig city.

Prior to the lease’s expiration, Semicon terminated the contract with Lirio. The
latter demanded payment, however, Semicon and Villalon failed to do so, which led
to Lirio filing a complaint for sum of money with the RTC against Semicon and
Villalon.

RTC RULING: Ruled in favour of Villalon. The RTC concluded that the
allegations clearly showed that the collection of unpaid rentals and damages arose
from the alleged breach of the lease contract executed and entered into by Lirio and
Semicon, and that the conflict was between Lirio and Semicon only and did not
include Villalon.

CA RULING: The CA nullified the RTC's dismissal order and ruled that the
RTC gravely abused its discretion. It held that the RTC completely ignored the
fact that the case "might possibly" and properly call for the application of the
doctrine of piercing the veil of corporate entity. Further, the CA found that Villalon
"played an active role in removing and transferring Semicon's merchandise,
chattels and equipment from the leased premises. This deprived Lirio of his
preferred lien over the said merchandise, chattels, and equipment for the
satisfaction of Semicon's obligation under the lease contract."

PETITIONER’S CONTENTION: Villalon argued that he is not a real party-in-

interest in the action as he is merely an officer of Semicon. Villalon further
contended that there was no competent allegation in the complaint about any
supposed wrongdoing on his part to warrant his inclusion as a party defendant.
Villalon likewise alleges that the CA erred when, in order to apply the doctrine of
piercing the veil of corporate entity, it had to add allegations not found in the
complaint.
RESPONDENT’S CONTENTION: Lirio alleged that Semicon and Villalon unjustly
pre-terminated the lease and failed to pay the unpaid rentals despite demand. Lirio
insists that Villalon had a role in the surreptitious and fraudulent removal of
Semicon's merchandise, effects, and various equipment from the leased premises
and their transfer to another location, which deprived him of his preferred lien over
the said merchandise, effects, and equipment. Thus, there is a sufficient cause of
action to hold Villalon personally liable for Semicon's liability because the
allegations of fraud and evasion of contractual obligations were clearly spelled out
in the complaint.

ISSUE: Whether the complaint failed to state a cause of action against Villalon?

RULING: YES, the complaint failed to state a cause of action against Villalon. Rule
8, Section 5 of the Rules of Court requires that in all averments of fraud or
mistake, the circumstances constituting fraud or mistake must be stated
with particularity, unlike in cases of malice, knowledge, or other conditions
of the mind which may be averred generally. Rule 8, Section 5 of the Rules
of Court requires that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with
particularity, unlike in cases of malice, knowledge, or other conditions of
the mind which may be averred generally.

In the present case, the only allegation of fraud in the complaint reads: "With intent
to defraud the plaintiff and to prevent the plaintiff from exercising his right [to be
constituted or appointed as attorney-in-fact of the defendant with power and
authority to cause the premises to be opened, to take inventories of all the
defendants' merchandise, effects, furniture, fixtures and/or equipment therein and
transfer the same to the plaintiff's bodega], the defendants surreptitiously and
fraudulently removed their merchandise, effects, and equipment from the lease
premises and transferred them to another location."

Lirio's mere invocation of the words "surreptitiously and fraudulently" does not
make the allegation particular without specifying the circumstances of Villalon's
commission and employment of fraud, and without delineating why it was
fraudulent for him to remove Semicon's properties in the first place.

The allegation of fraud would have been averred with particularity had Lirio alleged,
for example, that Villalon removed the equipment under the false pretense that
they needed repair and refurbishing but the equipment were never returned; or
that Villalon removed the merchandise because Semicon needed to sell them in
exchange for new supplies but no new supplies were bought. No such allegation
was ever made.

Thus, the RTC could not have properly ruled on whether there was a need to pierce
the veil of corporate entity precisely because the complaint failed to state with
particularity how Villalon committed and employed fraud.

Even if we are to relax the rules of procedure and allow certiorari to substitute for
the lost appeal, we still grant Villalon's appeal and reverse the CA's decision.
Finally, even if we grant that the allegations of fraud were averred with
particularity, the RTC's finding that the complaint failed to state a cause of action
against Villalon was only an error of judgment and did not constitute grave abuse of
discretion. An error of judgment, which is properly reviewed through an appeal, is
not necessarily equivalent to grave abuse of discretion.